You don’t need an inner-city address, Caren will help you tackle money matters in the ‘burbs, through a better understanding of all the important issues – investing, superannuation, budgeting, tax, insurance, mortgages, gearing, shares, managed funds, small business, food, home, fashion, travel, and much more.

A fun and entertainingly educational forum, specifically designed for Australian “suburbanites".

Thursday, February 7, 2013

What should investors be doing in 2013?

Today’s my first day back in the office since Christmas, and I’m pondering two important issues:

1. Why did I come back on a Thursday instead of just giving myself an extra two days break?

2. What was I thinking coming back on my birthday???!!!!

Interestingly, the financial world didn’t stand still while I was away. In fact it was quite busy!

Have you taken a look at our sharemarket lately? It’s trotting along quite nicely and putting a smile on the faces of lots of Aussie investors.

You may recall me griping last year about the US market’s record breaking returns compared to Australia’s lacklustre efforts, well it seems I was heard. I didn’t realise I had that much influence. I suspected, but wasn’t sure…

At its all-time peak in November 2007, the ASX All Ordinaries index reached 6,854 points. During the Global Financial Crisis (GFC) it fell as low as 3,091 points (a fall of 55%) on 10 March 2009. Yesterday it closed at 4,940, almost at that elusive 5,000, and a 59% recovery since the bottom…

This news also bodes well for the economy in general, because sharemarket recovery is usually one of the first signs of pending economic improvement.

Now, I’m often accused of being a bit of a Pollyanna by my family and friends, but when it comes to the sharemarket I’m realistic. There are fundamentals that even someone as optimistic as I am can’t ignore.

A few of the most important include:

• NO ONE can 100% accurately predict future sharemarket performance;

• The sharemarket IS NOT rational;

• Risk is an inherent part of sharemarket investment, and if it wasn’t, there’d be no point investing because that’s where the reward stems from;

• From inception, the sharemarket has ALWAYS returned to a higher point than its original peak, but no one can predict how long it will take;

• Sharemarket investment is a long-term commitment, and when you experience something as unexpected and unprecedented as the Global Financial Crisis, it may be longer than you originally anticipated.

There’s also no doubt that we’re living in an era where investor psychology is impacting the performance of the sharemarket more greatly than we’ve ever experienced. This is largely due to the almost instantaneous access investors have to information via the internet and media.

Unfortunately this information is not always understood or interpreted correctly and therefore the market is prone to over-react to what is, or is perceived to be, bad news. This isn’t going to change anytime soon, so we need to be prepared for market volatility even when it’s illogical.

I read an entertaining article in the Age last week by Marcus Padley who claimed that his new year's resolution was to stop occasionally and ask, "Is what I am reading, watching, listening to or doing, necessary, worthwhile or a waste of my time?" It made me laugh out loud, but I digress…

My point is that while our favourite economist, Felix Stephen, is forecasting a 7 year bull run from the end of this year (he’s also forecasting a correction and high volatility by this April), markets are quite literally unpredictable.

I would love to tell you that this recent market rally will continue, but I can’t. No one can. What I can tell you is that the investment philosophy of “set and forget” which worked in the early noughties has become somewhat redundant in this current environment.

So what do I think investors should be doing in 2013? I’m glad you asked.

1. Getting financial and market information from your Financial Adviser not the media. I’m not suggesting you shouldn’t take an interest in current affairs, but also make sure you get perspective that’s relevant to your personal circumstances, and without the scaremongering;

2. If you’re not reviewing your investment portfolio you should be; and if it hasn’t been formally reviewed in the past few years then it’s definitely time because changes almost certainly need to be made to reflect the current environment.

3. Don’t rely on “set and forget”, this just isn’t a sensible strategy in this post-GFC climate. One of The Hendrie Group’s primary focuses since the GFC has been sourcing strategies that include tactical decisions, and this should be a priority for investors.

4. If you’re thinking about retirement in the next few years then you should be getting advice NOW. Don’t wait until it’s too late to implement really effective strategies that might add thousands or tens of thousands to your retirement nest egg.

Hope you’ve enjoyed my birthday musings.

Talk soon,

No comments:

Post a Comment